This week’s economic calendar brings familiar names – the ISM Manufacturing and Services indices – but the real focus is the return of government labor market data after the shutdown-induced blackout. The November JOLTS report and the December jobs report will provide the first clean read on whether the labor market’s recent softening was a temporary pause or the start of a more durable slowdown.
Before the shutdown, the jobs market already was bending in a less reassuring direction. Since January 2025, nearly one million additional Americans have become unemployed, while total employment has declined by roughly 154,000. Those are not numbers consistent with a labor market that is merely “cooling.” They reflect a market that has moved past peak tightness and is now absorbing weaker demand, slower hiring, and a rising pace of layoffs.
Consensus expectations for the December jobs report reflect that reality. Payroll growth is expected to be slim, and the unemployment rate is forecast to edge up to 4.7% from 4.6% – the highest level since September 2021. That may sound modest, but it marks a meaningful shift. Just one year ago, the unemployment rate stood at 4.1%. In November, 7.8 million Americans were actively looking for work, up nearly 10% from a year earlier and far above the 5.8 million recorded in April 2023, when unemployment bottomed at 3.4%. The direction of travel is clear: labor demand is slowing faster than labor supply.
The composition of that deterioration matters as much as the headline figures. November’s jobs report already showed how narrow the remaining pockets of strength have become. Payrolls rose just 64,000, following a sharp drop in October, pulling the three-month average down to barely 22,000 jobs per month. Stripping out volatile public-sector swings, private payroll growth was positive but subdued, a sign of resilience that is increasingly fragile rather than robust.
More concerning was the distribution of job gains. Healthcare and social assistance accounted for essentially all of the net hiring. Outside of those sectors, the private economy has quietly been shedding jobs for months. Cyclical industries – transportation, leisure and hospitality, information, finance, and wholesale trade – continue to retrench, consistent with firms adjusting to slower demand, higher financing costs, and ongoing margin pressure. Goods-producing sectors offered little offset, with manufacturing contracting again despite a temporary lift from construction.
At the same time, wage growth continues to cool. Average hourly earnings rose just 0.1% in November, bringing year-over-year wage growth down to 3.5%, its slowest pace in four years and roughly back to pre-pandemic norms. For inflation dynamics, that moderation is welcome. For households, it is a double-edged sword: slower wage growth at a time when employment security is weakening tightens budgets and dampens consumption momentum.
This week’s JOLTS data will be critical for validating that picture. Job openings have already fallen below the number of unemployed workers – a classic late-cycle signal. Any further rise in layoffs or continued weakness in hiring would reinforce the view that labor market slack is no longer just emerging, but broadening. The shutdown distorted recent releases, but it did not create these trends; it merely delayed their confirmation.
For policymakers, this backdrop helps explain the Federal Reserve’s increasingly delicate posture. At its December meeting, the Fed cut rates by 25 basis points, explicitly citing slowing job gains, rising unemployment, and elevated uncertainty around the outlook. Importantly, the Committee judged that downside risks to employment had increased, even as inflation remained “somewhat elevated”. The split vote underscored the tension: some officials worry that easing too slowly risks unnecessary labor market damage, while others remain wary of declaring victory on inflation.
The coming data will shape how that debate evolves in early 2026. If payroll growth remains stuck near stall speed, unemployment continues to drift higher, and JOLTS confirms a pullback in labor demand, the case for additional easing strengthens – even if inflation progress remains uneven. Conversely, a sudden reacceleration in hiring would challenge the narrative of broadening weakness, though little in the leading indicators points in that direction.
For businesses, the message is less about imminent recession and more about regime change. The era of acute labor shortages is over. Wage pressures are easing, but demand uncertainty is rising. Strategic workforce planning now requires flexibility rather than expansion, with a focus on productivity, cost control, and the ability to respond quickly as conditions evolve.
In short, this week’s data is not about one report or one number. It is about whether the labor market’s cracks – visible for much of the past year – are finally becoming impossible to ignore. The answer will set the tone for markets, policy, and growth expectations well into the new year.
